Kroger agrees to buy rival grocery company Albertsons for $24.6 billion

Kroger and Albertsons plan to team up.

The companies said Kroger would pay $34.10 a share for the rest of the company. There were reports that a deal was imminent, and the shares of the company surged to close at $28.63.

Walmart is the largest grocery store in the United States with a market share of 22%. Kroger and Albertsons are close to Walmart.

The boards of both companies unanimously approved the deal.

The grocery industry is facing challenges. Shoppers are embracing new ways to replenish the fridge and supermarkets are racing to keep up. Consumers bounce between browsing store aisles and ordering home deliveries as companies invest in automation, employee training and more.

Inflation has hit grocery stores hard. The Bureau of Labor Statistics data shows that food prices have increased. When to pass on higher costs to customers and when to absorb them has become a challenge for companies.

There are a lot of grocery industry. Privately held regional grocery stores, such as H-E-B in Texas, command strong loyalty. Customers have been attracted to newcomers such as discounters and online retailers. Some Americans stock up on food at warehouse clubs like B.J.'s Wholesale.

The names that the operators have acquired over the years are included in the banners. The banners of Kroger and Albertsons include Fred Meyer.

More than 600,000 people are employed by Kroger and Albertsons.

According to a market researcher, Kroger captured 9.9% of the US grocery market in the past year. The share of the company was 5.6%. Ahold-Delhaize, Sam's Club and Target are the other big players. Fresh Direct, an online grocery store, was acquired by Ahold Delhaize.

Regulators needed to sign off on the deal. Eleanor Fox is a New York University professor who specializes in antitrust and competition policy. She said that a merger would be less likely if they were the top two grocery stores in the market.

Southern California, Colorado, Seattle, and parts of the Midwest and Texas are some of the markets that have significant overlap. The Northeast and Southeast don't have a lot of overlap.

Kroger's CEO said in a news release that theAlbertsons Cos. brings a complimentary footprint and operates in several parts of the country with very few or no Kroger stores

Morgan Stanley's Gutman said that the combination will likely take a long time to be reviewed by regulators.

Gutman warned on the financial side of the deal. Higher profits have not been achieved by consolidation in the grocery industry. He believes that the industry could be at a tipping point where a big merger could lift margins.